Unless you’ve been living under a rock, all we’ve heard about the last few days is about the great American debt crisis. Let’s not make the same mistake our government has: spending funds that do not exist! So below I’ve reposted my September 2010 blog “Debt Diet.” If you’re not in financial shape, let today’s news be a awake up call, and the blog below a means for getting fit! Enjoy!
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Debt Diet
That’s right America! Besides needing to go on a weight diet, our country desperately needs to go on a debt diet. Oprah covered this topic in 5 series, so in case you missed it, or can’t afford to buy the tapes, not to worry! I took copious notes and would love to share them with you. Below are some of the highlights Oprah and her experts discussed.
Facts regarding the financial shape of Americans:
Debt is at an all time high, and Americans are saving less than ever
70% of Americans are living pay check to pay check!
More people have filed for bankruptcy, cars are being repossessed and homes are being foreclosed on in the greatest numbers in our history
Besides the recent recession, there are many psychological reasons we are in debt
This problem is worse than obesity
4 Steps to getting out of debt:
Step 1. Calculate your debt: You can’t fix something you don’t completely understand. Lay out EVERYTHING you owe. What do you owe the bank for your house, car, etc...each credit card you owe a balance, even the debt you may owe family and friends.
Step 2. Track your spending, find extra money, and use that money to pay down your debt: For one week, write down EVERYTHING you purchase (no matter the method). Once you and each family member has done this, it’s time to start asking the questions: Why do you purchase what you buy? Really examine the psychological reasons behind your purchases. Did you feel neglected as a child because you had little to spend? Is there a similar product at a reduced cost or can you make this purchase fewer times a week? Do you really need a Venti coffee at Starbucks everyday or can you splurge just a few times a week, or perhaps only order a Tall coffee? Once you’ve determined how you can reduce your expenses, use that extra money to pay down your debt.
Step 3. Learn the credit card game: If you’re on the hamster wheel of credit card debit, it’s time to get off. The credit card companies have no interest in helping you stop this cycle, in fact this is how they profit. Follow theses steps and reduce your debt even before you pay everything off
Determine the annual interest rate and amount owed for every credit card you have (even those with a 0 balance)
Pay them off in the order of smallest balances first. This is a powerful psychological win. As you pay the next smallest debt, take the amount you would have paid on the ones now paid off and apply that amount to the next bill.
Call the credit card company and renegotiate your rate. Don’t take no for an answer. Continue to climb the ladder of supervisors, and if that doesn’t work, call the next day. Sometimes it will take as many as 5 calls to get this achieved.
Also, don’t be fooled by their initial annual rate fees. Read the fine print and stay on top of this by reviewing your statement every month.
Do not close any cards with a 0 balance. Not only does this effect your credit score (it reduces it!) it also gives you no leverage when renegotiating your rates with other cards, because you’ve reduced your available credit line.
When possible pay more than the minimum each month
Keep in mind that the interest rate for cash against your card may be higher than the rate for charges. And charging for items like gas or food, may indicate to the credit card company that you are needy of cash. This, along with the cash advances, may trigger a rate increase.
Never be late with your bills. This allows the credit card company to raise your interest rates
Step 4. STOP SPENDING!! I know, easier said than done. This is where true discipline will come into play. But once you get a handle on your spending and some time has gone by, you will build up greater will power and you will not want to slide back into your old habits. If you do, don’t fret. We’re all guilty of giving in from time to time. Simply get back on track, see if you can correct any damage (do you really need those jeans? If not, return them!), and continue to move forward to a healthy financial future.
For additional advice, contact me at ttafur@thomasinatafur.com



